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TMI Blog2021 (2) TMI 226X X X X Extracts X X X X X X X X Extracts X X X X ..... r for examining the expenditure for the purpose of income tax. The name given to an expenditure is a nomenclature in the books of accounts is not the final test to decide the exact nature of expenditure for the purpose of income tax. Classification of this expenditure as capital in nature in its books of accounts of the assessee for the purpose of Companies Act does not ipso facto make that expenditure as capital expenditure for the purpose of income tax. Hence we are of the view that the non-recovery of advances given by the assessee for acquiring immovable property in carrying out the business activities of the assessee had to be treated as business loss instead of capital loss and to be allowed u/s. 37 - Decided in favour of assessee. - ITA No.1252/Bang/2018 - - - Dated:- 3-2-2021 - Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Assessee : Shri H. Guruswamy, ITP For the Revenue : Shri Priyadarshi Mishra, Addl. CIT (D.R) ORDER PER SHRI CHANDRA POOJARI, A.M. : The assessee has filed an appeal against the order of Commissioner of Income Tax (Appeals)-7, Bangalore Dt.6.2.2018 for the Assessment Year 2013-14. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chase the following two properties as given below : Name of the Vendor Location of the Property Agreed Sale Consideration Amount of Advance Paid Amount Received Back Loss Incurred Sri G. Durga Prasad Property in Sy. No.51/3, Kedakal Vill., Somvarpete Taluk,Coorg District. ₹ 45,00,000 ₹ 20 Lakhs ₹ 15 lakhs after forfeiture of 25% of the advance. ₹ 5 lakhs Smt. T. Radha Property in Sy. No.71, Kedakal Vill., Somvarpete Taluk, Coorg District. ₹ 1,14,80,000 ₹ 50 lakhs ₹ 37.50 lakhs after forfeiture of 25% of the advance. ₹ 12.50 lakhs The ld. AR further submitted that the Sale Agreements were not materialised and the amount of advance was refunded after forfeiture of 25% of the advance as per the terms agreed before the Arbitrator as per the Sale Agreement. The A.O. and CIT (Appeals) have not disputed the forfeited loss of advance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.03.2013. However in the Return of Income the assessee claimed the same as business loss. In the present case, the assessee is in the following businesses as per the MOU : (A) MAIN OBJECTS TOBE PURSUED BY THE COMPANY ON ITS INCORPORATION ARE : 1. To carry on in India or abroad, ;the business of real estate agents, brokers, consultants, business brokers, developers, colonizers and to engage in all types of construction and trading activities relating to all types of immovable properties and all types of infrastructure projects either independently or jointly in partnership, joint venture or otherwise, or to transact on commission, brokerage or otherwise. 2. To carry on the business, either individually or through a market network or as franchisors or own network of professionals, in the Real Estate industry including as Real Estate Advisors, Agents, Brokers, Consultants, Home Loan specialists, engineers, designers or any other professionals, any business related to real estate industry and to engage in any other type of arrangements with the professionals in regard to the real estate business or any other business related thereto. This fact also admitted by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n carrying out the business activities of the assessee had to be treated as business loss instead of capital loss and to be allowed u/s. 37 of the Act. 6.1 We find that the co-ordinate bench of this Tribunal in the case of DCIT Vs. Max Hypermarket India Pvt. Ltd. (supra) held in paras 5.3.1 to 5.4.4 as under : 5.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the orders of the authorities below. The facts on the issue before us are not in dispute. The assessee is in the business of retail trade by operating super-market stores across the country in the name of SPAR . The assessee had paid rental advance of ₹ 10 lakhs to a landlord for the purpose of obtaining a property on rental basis to open and operate a store at Mohali. However, the assessee subsequently, for reasons of commercial expediency, decided against opening the store at Mohali. The landlord forfeited the amount of rental advance paid by the assessee and the assessee had written off this amount of ₹ 10 lakhs in its profit and loss account. The AO was of the view that the amount of renal advance is capital in nature and accordingly dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, the assessee is in appeal before us oil issue. 6.1 The learned AR has filed written submissions. The summary of the same reads as follows: The losses arising in course of the business, other than a capital loss, which is incidental to the trade would qualify for deduction under section 28 of the Act. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of Badridas Daga v. CIT(34 ITR 10) (SC), wherein it was held that When a claim is made for a deduction for which there is no specific provision in the Act, allowability of the same would depend on whether, having regard to accepted commercial practice and trading principles, it can be said to arise out of the carrying oil the business and to be incidental to it . Since the very purpose of taking the said premises on rent was to merely to conduct the existing business operations, the loss arising to the Appellant on account of the write off of the rental deposit would be incidental to the business. The Appellant did not acquire any asset of capital nature in the present case, nor there is any change in the capital field and thus the loss arising due to write off of the rental deposit is purely re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licence to use premises, assessee did not obtain any enduring advantage or interest in properties, loss of security deposit and write off of same against rental of properties was a loss incidental to business and, thus, assessing officer was right in allowing said amount as a deduction.' 6.4 In conformity with the findings of the Honble Mumbai Bench of the Tribunal on a similar issue (supra), we are of the firm view that the write off of the interest free deposit made by the assessee to the licensor against rental properties was a loss incidental to the business and, hence, the assessee was entitled to claim the same as allowable deduction. It is ordered accordingly. 5.4.4 In the case on hand also, the factual matrix is similar. The assessee is in the business of running stores and renting out premises in this regard is part of its normal business activity. Therefore, in our considered view, the impugned transaction is intrinsically linked and identical to the assessee s core business activity. In this view of the matter, we are of the opinion that the ld CIT(A) has rightly held that the write off of rental advance paid is in the realm of revenue expenditure and allowabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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